), one of the largest grocery chains in the US, posted first
quarter fiscal 2013 earnings per share of 19 cents, sharply lower
than the Zacks Consensus Estimate of 38 cents and the prior-year
quarter earnings of 35 cents a share.
The lower-than-expected results were due to the disappointing same
store sales during the quarter coupled with disposition of several
fuel centers owned by the company.
Revenues and Margins
Supervalu's total sales dipped 4.5% to $10.6 billion in the first
quarter of fiscal 2013 from prior-year sales of $11.1 billion. The
reported revenue also missed the Zacks Consensus Revenue Estimate
of $10.9 billion. Lower customer spending due to the ongoing
economic challenges as well as aggressive pricing by the
competitors negatively impacted the sales.
Gross margin contracted 10 basis points to 22.0% in the first
quarter of fiscal 2013 on account of higher advertising spending
and changes in business segment mix. These were partially offset by
benefits from lower fuel sales and a lower Last In First Out (LIFO)
charge. Supervalu reported an operating profit margin of 2.0%
during the quarter, compared with a margin of 2.5% in the
Net sales at
declined 6.8% to $6.8 billion in the first quarter of fiscal 2013,
as compared with $7.3 billion in the prior-year quarter. Results
were impacted by negative same-store sales of 3.7%, store closures
and sale of fuel centers. Retail food operating margin declined 50
basis points in the reported quarter to 1.5% due to advertising
expense, and the impact of sales deleveraging, partially offset by
the company's cost reduction initiatives.
Net sales at
remained more or less flat at $1.29 billion compared with $1.28
billion in the prior-year quarter. The marginal increase was on the
back of 53 additional stores being operated at the end of the first
quarter. Save-A-Lot operating margin declined 80 basis points in
the reported quarter to 4.6% due to negative same store sales
during the quarter and increase in administrative costs
Net sales at
marginally slipped 0.9% to $2.48 billion in the first quarter of
fiscal 2013 compared with $2.50 billion in the prior-year quarter.
Lower spending by the existing customers dented the sales of this
segment. Independent business operating margin declined 50 basis
points in the first quarter of fiscal 2013 to 3.1%, primarily
attributable to restructuring costs.
Other Financial Update
Cash and Cash equivalents of Supervalu as of June 16, 2012 were
$151 million versus $157 million as of February 25,2012. Long-term
debt and capital lease obligations as of June 16, 2012 were $6.0
billion, as compared with $5.9 billion as of February 25,2012.
Initiatives for the Future
The company has undertaken a fair price plus promotion strategy,
under which it aims to lower the pricing to match with its
competitors. The company expects to do so by the end of fiscal
2013. Although this initiative may hurt short-term operating
margins, yet it is expected to help the company gain market share
in the longer term.
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Moreover, the company has taken cost-reduction initiatives that are
expected to lower an additional $250 million administrative and
operational expense by fiscal 2014. This is in addition to the
company's current target of curtailing $75.0 million expenses for
With a view to increase its financial flexibility, the company
plans to replace its senior credit facility with an asset-based
lending facility and term loan secured by a portion of the
company's real estate. The company also plans to bring down capital
expenditures to a range of $450.0 to $500.0 million in fiscal 2013
from $675.0 million, suspend the quarterly dividend, and reduce
debt by $450.0 to $500.0 million in fiscal 2013.
Supervalu expects to complete remodeling of approximately 40 store
and increase Save-A-Lot's store count to 40 stores, including
We believe that the global economic slowdown is causing headwinds
for Supervalu as well as its peers. Further, low disposable income
of consumers is forcing these companies to spend cautiously.
Moreover, the Food and Drug Administration (FDA) is becoming more
and more vigilant regarding food and health standards. Adverse
publicity regarding food and drugs is affecting consumer confidence
and preventing them from buying the company's products.
Supervalu operates in a highly competitive market. Moreover, labor
unions pose inherent risks for the company and potential labor
related issues remain a concern. Supervalu faces stiff competition
Wal-Mart Stores Inc.
The Kroger Co.
However the long term initiatives taken by the company can help the
company in gaining market share over its competitors, reduce costs
and increase value to the shareholders of the stock.
Currently, the stock carries a Zacks #3 Rank (short-term 'Hold'
rating) on Supervalu. However, we have a Neutral recommendation on
the stock over the long-term.